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The first year of Jackson – the sky’s the limit?


The sky: right where it always was

Posted by Neil Rose, Editor, Litigation Futures

So here we are, on April Fool’s Day once more, talking about the Jackson reforms.

We were told that the sky would fall in, that the doors of the court would shut on many and that dole queues would be swelled by large numbers of personal injury (PI) lawyers. But I have been reporting on the legal profession long enough to know that the predictions of catastrophe that precede any major change never come to pass. The profession adapts – it always has, it always will.

That’s not to say there are not difficulties or casualties along the way – nor is this to minimise the direct impact on some people’s livelihoods, because undoubtedly some jobs have been lost.

It is, of course, too early truly to judge the impact of Jackson; the huge hangover from pre-April 2013 cases has still to pass and we do not have the information to assess whether access to justice has been restricted, as was feared. Also let us not forget that the cut in RTA portal fees, and extension of the portal, that form a crucial part of the overall picture were government initiatives, rather than Lord Justice Jackson’s.

And while Sir Rupert did recommend a ban on referral fees, I think it would be fair to say that its introduction had more to do with politics than the words of a Court of Appeal judge. It was handy cover, though. Either way, it doesn’t seem to have made a huge amount of difference to law firms. It has done for claims management companies, but generally the ones that have suffered are the ones nobody is shedding any tears over.

So here’s what I’ve seen. In the personal injury world, those firms that saw the changes coming and started preparing 18 months in advance, whether to change the way they did things or diversify or whatever, appear to have weathered the storm.

As Mark Grover, chief executive of Manchester and Liverpool firm Antony Hodari, put it today, despite a reduced margin, PI work remains profitable enough to form a solid base for his firm at least to grow and diversify. “While lower margins have forced some firms out of business, the reforms haven’t yet had the dramatic impact that many were predicting,” he said.

It is those firms that did not prepare until 1 April 2013 was upon them, that in the wildly optimistic words of one managing partner I spoke to last May “thought somehow the Law Society would stop it happening”, that have encountered difficulties.

That many claimant firms are coping also reminds us that, even by their own admission, they had it very good for a decade; a periodic readjustment is no surprise.

One side-effect, however, is the number of firms that now seem to be eyeing up clinical negligence work to replace lost mainstream PI income. For one thing there are only 16,000 or so clinical negligence cases a year, as against around a million PI claims, meaning there is only so much competition the market can bear, but more worrying is the risk to clients of PI lawyers who think they can easily switch over.

That there have been no reports of client resistance to losing up to 25% of their damages in a success fee – the concept of retaining 100% of damages being, of course, the novel one – suggests Sir Rupert’s vision of a competitive market is a long way from taking hold. We haven’t yet seen whether qualified one-way costs shifting will dwarf Mitchell in terms of the satellite litigation it causes, but it does not seem to have removed the need for after-the-event (ATE) insurance to cover the adverse costs risk (which was Jackson LJ’s concern, rather than disbursements), with a survey last week [2] showing that most PI firms still offer it in every case, and I know some simply demand it.

All the serious ATE players are still at the table, even if PI caseloads have fallen and they are looking to commercial litigation instead. I’m told ATE is actually a lot easier to sell to would-be buyers now that it operates like ‘normal’ insurance and lawyers no longer have to explain to clients the strange idea of self-insuring policies that mean they never having to pay the premium, win or lose.

Over the years I’ve written more articles along the lines of ‘When will commercial litigators wake up to CFAs?’ than I care to remember, but it is clear from the growing number of cases featuring CFAs that they are slowly spreading. More firms are making flexibility over funding and arrangements with ATE providers a point of differentiation.

The work of third-party funders in educating the market about litigation finance – and indeed their own use of ATE – is also helping, but the sector and its commitment to voluntary self-regulation now faces a stern test given recent events at Argentum [3].

It is also important to remember that third-party funding is a very small market of very big cases – that Burford Capital, the world’s biggest funder, only has 35 active investments [4] in litigation and arbitration tells the story. It remains a disappointment to me that funding has yet to be seen in consumer multi-party actions, which was the access to justice deficit that prompted the Civil Justice Council to champion its introduction a decade or so ago.

Every costs conference of the past year has bemoaned the ambiguity in the Damages-Based Agreement Regulations 2013 that is preventing the take-up of this new form of funding, and particularly hybrid agreements where only part of the fees are subject to a DBA. Craig Budsworth, chairman of the Motor Accident Solicitors Society, continues to get a laugh by calling them “Don’t Bother Agreements”.

While there may be force in the legal analysis, there has never been anything to stop firms working under partial CFAs; Burford has put forward another alternative, dubbed a ‘synthetic’ hybrid DBA [5]. So could it be that many commercial firms are in fact rather happy to have an excuse not to offer DBAs?

We learnt recently that the government is to make an announcement [6] on this issue, but it would be a mistake to assume that this means the regulations will change. I don’t sense too much sympathy for City firms from the Ministry of Justice on this count.

Equally the protests from the City in particular about the widening of costs management smack of self-interest – draft your budget properly, underpinned with the right assumptions and contingencies, and there’s no reason why the process should not benefit all, particularly the client. Nobody’s expecting a solicitor to be able to fully cost a three-year piece of litigation on day one, but the profession can do better than it has hitherto.

And so to Mitchell, the stand-out moment of the first year of Jackson. Nobody can surely disagree with the principle of greater compliance with rules, orders and directions – I have long been of the view that a stricter approach to compliance under the old CPR would have obviated the need for much of Jackson – and so the legal debate comes down to balance justice between the parties with the wider interests of justice.

The admission by the Master of the Rolls [7] last month that, while he does not regret the Mitchell decision, there will need to be further appeal court rulings to address inconsistencies in approach lower down hints that he is looking for the opportunity to smooth off the rough edges – although as Professor Dominic Regan has pointed out, one of the roughest decisions came from the Court of Appeal itself (with deputy head of civil justice Lord Justice Richards presiding) in Durrant [8].

Some kind of happy-ish medium will no doubt be reached in time, but the impact on smaller firms is one unforeseen consequence. Just today the head of a good-sized firm told me about the upcoming acquisition of a two-partner practice prompted by the latter’s concern that it didn’t have the back-office resource to avoid Mitchell defaults, with the professional indemnity implications they could bring with them.

So, a year on, where are we? As the Association of Costs Lawyers says today in a report on costs management [9], it will take time to sort out the teething problems, and at the recent Civil Justice Council Jackson event the senior judiciary’s attention was clearly caught by some of the tricky issues around cases that straddle 1 April 2013. The civil justice system is far from perfect, but you can’t put legal aid cuts or court fee rises at Lord Justice Jackson’s door.

Has he achieved his core goal of promoting access to justice at proportionate cost? I hate any article that ends with the wishy-washy conclusion that ‘only time will tell’, but perhaps just on this occasion it is justified.

What I can say for sure, however, is that the sky hasn’t fallen in.